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The Chinese central government is encouraging further consolidation in the country’s automotive sector in an effort to encourage efficiency and product quality, according to a paper released by the State Council.

The plans emerged in the last two days following the publication of several papers on the government’s official website.

The government wants two or three large domestic vehicle groups to emerge in the next three years, each with production and sales of at least 2m units. It also wants a further four or five domestic auto groups with sales of at least 1m units.

The government named four groups that should consider expansion through M&A – FAW, Dongfeng Motor, SAIC and Chang’an Auto.

The government said it expects sales and production to reach 10m units this year and growth of 10% per year over the next three years.

Greater emphasis will be placed on expanding sales of small cars with engine of up to 1.5 litres. It wants these models to account for around 40% of total car sales, with mini-vehicles accounting for 15%.

To support the automotive industry consolidation, the government also wants four or five major steel manufacturers to emerge, to account for around 45% of national output by 2011. There are currently numerous small scale steel manufacturers across the country which combined produce high volumes of low quality steel.

Tony Pugliese